spending almost a year looking for ways to boost foreign direct
investment into India, a high-level committee headed by Planning
Commission Member N.K. Singh has decided that foreign investment
should not be allowed in retail. Reason: big retailers will kill
employment in the industry. Huh? Before we proceed to blow the committee's
specious argument into smithereens, let's get one thing clear: no
big retailer-be it Wal-Mart, Carrefour, or Royal Ahold-is waiting
with bated breath for the government to open up retail. Simply because
real estate in India is way too expensive relative to its quality,
the network of highways is abysmal, there is no organised vendor
base for many of the food items, and power is exorbitantly priced.
If anything, India will have to go down on its knees to woo the
Wal-Marts of the world. And we suggest the government does so pronto.
Retail is not about stores. In fact, it is
not even about merely selling goods. It's about value and efficiency.
Value for the consumer and efficiency for the retailer, the suppliers
and, in effect, the economy. Consider what happens when somebody
like Wal-Mart comes in with its few hundred million of dollars as
initial investment. First of all, it builds a big store, consuming
cement and steel, among others. Then, it employs people to man its
stores-these people won't be those unfortunate souls who work in
dingy kirana stores, but school and college graduates, who today
probably work for a couple of thousand rupees. Wal-Mart will invest
in their training and employment and pay them decent wages and benefits.
The story won't end there. Simultaneously,
Wal-Mart would have created a supplier base for the thousands of
products that it will stock. The suppliers will be taught new ways
of doing business; they will be made to focus on quality, become
more efficient, introduce safer work practices (a Wal-Mart auditor
from the US will come and actually check if the supplier's factory
has clean toilets and a fire exit, among other things), and this
supplier will in turn pass on the knowledge to his own supplier.
Then, you start realising how the benefits spread.
More importantly, organised retail will help
farmers and small-scale industries to get better prices for their
products. There will be less wastage of goods. Current estimates
put wastage in the food products at thousands of crores of rupees.
Value addition to food products is abysmally low at about 7 per
cent, compared to 23 per cent in China and 133 per cent in the UK.
(Have you bought branded bananas or apples, or for that matter ready-to-eat
salad, from your kirana store?) Reducing wastage will mean cheaper
prices for the consumer and better price realisation for the farmer.
A richer farmer would be able to take his children off the farm
and put them in school. When that happens, the fortunes of rural
India will begin to change-for the better.
As for the committee's argument that organised
retail will endanger jobs, here are some numbers: According to the
US Department of Labor, more than 22 million Americans work in around
2 million retail stores. Wal-Mart, the world's largest corporation
with sales of $218 billion (that's slightly less than half of India's
GDP), alone employs more than 1.3 million people. There's no reliable
estimate on how many people are employed in the retail industry
in India (some guesstimates put the figure at 15 per cent of all
employable adults). Even if the number matches or exceeds that of
the US, it is a given that the average pay of Indian retail workers
would be substantially less. Why? Simply because an estimated 96
per cent of the retail sales happens through mom-n-pop stores. And-take
note, government-most of them pay no sales tax.
Yet, there's huge potential for organised retail
to grow. Homegrown retail chains such as Shoppers Stop, FoodWorld,
and Pantaloon are beginning to go national. But to become a Wal-Mart,
they will need foreign collaboration both for funds and know-how.
By shutting out foreign investment in retail the government is short-changing
both the consumer and the economy.